The Bank of England (BoE) held its key interest rate at 4% on Thursday, mainly in line with expectations, as the central bank navigates a backdrop of stubborn inflation and sluggish growth.
Commenting on the final decision, policymakers said the current economic conditions did not warrant a change.
However, the decision was a close call, as four out of nine monetary policy committee members voted for a 25-basis-point cut. Governor Andrew Bailey had the casting vote.
_”_It is perhaps no surprise he has taken a more cautious approach, particularly given the UK continues to suffer from higher inflation compared to peers,” said Lindsay James, investment strategist at Quilter.
Governor of the Bank of England Andrew Bailey said in a statement: “Rather than cutting Bank Rate now, I would prefer to wait and see if the durability in disinflation is confirmed in upcoming economic developments this year.”
UK consumer price growth was 3.8% in September, still well above the Bank of England’s 2% target. The BoE nonetheless said on Thursday that inflation had peaked and that progress on underlying disinflation was continuing.
At the same time, figures on wages and employment point to a softening labour market. Analysts say the combination of slower inflation and weaker jobs data has increased expectations that interest rates could be cut in the coming months.
The Bank also highlighted potential challenges from global uncertainties and upcoming fiscal tightening, suggesting any move on rates would be cautious.
According to Quilter’s James, the BoE decision comes as a blow to the UK Chancellor Rachel Reeves, who is expected to outline tax rises in her budget on 26 November.
“With a fresh set of tax hikes incoming, the Chancellor would have liked to have been in a position where rates were below 4%,” James said. The government will want to stimulate the economy, she added, but will have to balance this with ambitions for fiscal restraint.
In light of challenges facing the British economy, analysts expect more rate cuts on the table in the coming months.